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Trinity Medical Services, LLC v. Merge Healthcare Solutions, Inc.

United States District Court, M.D. Louisiana

January 8, 2020




         This matter is before the Court on four motions for summary judgment filed by Defendant, Merge Healthcare Solutions, Inc. (“Merge” or “Defendant”): (1) Motion for Summary Judgment on Lost Profits (“Lost Profits Motion”) (Doc. 77); (2) Motion for Summary Judgment on Misrepresentation and Omission Claims (“Misrepresentation Motion”) (Doc. 78); (3) Motion for Summary Judgment Seeking Enforcement of Contractual Limitation of Liability Clauses (“Limitation of Liability Motion”) (Doc. 79); (4) Motion for Summary Judgement on Claims by Prestige Worldwide (“Prestige Motion”) (Doc. 80). In opposition, Trinity Medical Services, LLC, (“Trinity”) Performance Labs, LLC, (“Performance Labs”) and Prestige Worldwide Leasing, LLC (“Prestige”) (together, “Plaintiffs”) have filed memorandums in opposition to each of the motions.[1] Accompanying their memorandums in opposition, Plaintiffs filed Appendix I: Statement of Material Facts Establishing a Genuine Dispute. (Doc. 95.) Defendant filed a reply to each of the plaintiff's memorandums in opposition.[2] Defendant also filed Merge Healthcare Solutions, Inc.'s Motion to Strike Plaintiffs' Appendix I, (“Motion to Strike”) which is fully briefed. (Motion to Strike, Doc. 112; Memorandum in Opposition to Merge's Motion to Strike, Doc. 115; Reply Memorandum in Support of Motion to Strike; Doc. 118.) Oral argument is not necessary. Having considered the parties arguments, the undisputed facts, and the law, the Court will:

a. DENY Defendant's Motion to Strike without prejudice. Defendant's objections to the evidence offered by Plaintiffs were noted and considered in conjunction with the Court's consideration of Defendant's motions for summary judgment. In ruling on summary judgment, the Court does not consider arguments and legal conclusions couched as facts.
b. DENY Defendant's Lost Profits Motion because questions of fact remain as to whether there were defects in the Merge LIS Software that impeded Performance Labs from restarting operations and progressing with testing. Therefore, the Court cannot say as a matter of law, Plaintiffs' cannot claim lost profits because it is too speculative or based on pure conjecture.
c. DENY Defendant's Misrepresentation Motion because questions of facts exist as to the intent of the parties, the inducement of the misrepresentations and the justifiable reliance of Plaintiffs on Defendant's representations and omissions. These questions of fact pervade whether the Plaintiffs can recover for fraud, negligent misrepresentation, and under LUTPA.
d. DENY without prejudice to re-urging the Limitation of Liability Motion because it is inappropriate for the Court to enforce the contractual limitation of liability clause at summary judgment as questions of fact remain regarding the Plaintiffs' claims for fraud and gross negligence. However, in the event that the exceptions do not apply, the contractual limitation of liability is not barred as a matter of law and is enforceable to bar any award for lost profits and limit Plaintiffs' recovery to what was paid under the Sales Order.
e. DENY Defendant's Prestige Motion because there is evidence that creates a question of fact as to whether Prestige lost contracts with Performance Labs when it shuttered. If a jury finds that the alleged defects in the Merge LIS Software was the cause of Performance Labs' failure, then a reasonable jury could likewise find that but for Performance Labs' failure, Prestige would have continued to provide staffing at Performance Labs.

         I. Relevant Facts

         Trinity is a Louisiana holding company and the sole owner of Performance Labs and Prestige. Performance Labs was a laboratory located in Mandeville, Louisiana that performed toxicology tests. Prestige provided employee leasing and laboratory management services to Performance Labs and other labs, including Pathway Diagnostics, LLC (“Pathway”). Blake Bourque is the only owner of all three Plaintiff companies. Pathway, which is not a party to this suit, is a laboratory owned by insiders of Trinity that performs toxicology tests and is located in Mississippi.

         Merge is a developer and manufacturer of clinical laboratory software systems, including the Merge LISTM software (“Merge LIS Software”) at issue in this case.

         As a toxicology laboratory, Performance Labs was subject to the Clinical Laboratory Improvement Act (“CLIA”). To be able to run tests on live patient samples, Performance Labs needed to be certified by the Centers for Medicare and Medicaid Services (“CMS”). CMS's certification was based on compliance with regulatory and statutory mandates to ensure patient health and safety. In June 2015, Performance Labs failed an inspection by the Louisiana Health and Hospitals Department (“LHHD”) and CMS. The state and federal regulators found “condition-level noncompliance” that “constitute an immediate jeopardy to patients.” (Def. Ex. C, July 31, 2015 Letter from CMS to Performance Labs at 4, Doc. 77-7.) As a result of Performance Lab's noncompliance, it was required to submit plans of correction to state and federal regulators and agreed to cease testing patients on two sets of equipment. (Id. at 5.) During an on-site visit in the fall of 2015, state and federal regulators again concluded that Performance Labs “demonstrated continued systemic and pervasive problems through the laboratory which has led to findings of continued immediate jeopardy.” (Def. Ex. E, December 23, 2015 Letter from CMS to Performance at 4, Doc. 77-9.) Due to these findings, Performance Labs was sanctioned by the state and federal regulators and as a result:

(a) barred from accepting live patient samples (Doc. 77, Ex. F, December 30, 2015 Emails from CMS at 3);
(b) precluded from accepting payments from Medicare and Medicaid (Id.);
(c) required to notify all clients who ordered patient testing that the results were not accurate or reliable (Doc. 77, Ex. G1, January 12, 2016 Plan of Correction at 20, 46); and
(d) had their CLIA certificate suspended, prohibiting Performance Labs from performing patient testing. (Doc. 77, Ex. H, January 14, 2016 Email from CMS to Performance Labs.)

         Facing this pressure from federal and state regulators and hoping to get Performance Labs back into compliance, Trinity negotiated with and on January 11, 2016, signed a Sale Order with Merge to lease the Merge LIS Software to use at Performance Labs and Pathway. As a result of the sanctions, Performance Labs also reduced their equipment and personnel to a barebones operation, employing only a technical supervisor and a lab technician. (Def. Ex. K1, M. Spruill Dep., at 117:17-19, Doc. 77-16.)

         Also, in January 2016, Blake Bourque's brother in law, Kyle Mouton, along with Trinity's in-house counsel, Phil Martinez, opened Pathway in Mississippi. (Def. Ex. O1, K. Mouton Dep., at 17:19-22, 18:22-20:3, Doc. 77-22.) Pathway is not owned by Trinity. (Pl. Ex. 19, K. Mouton Dep., at 18:24-19:7, Doc. 95-19; Pl. Ex. 12, B. Bourque Dep., at 127-28, Doc. 95-12.) Most of Performance Lab's staff and equipment was moved to Pathway. (Def. Ex. O1, K. Mouton Dep. at 120:3-15, 30:9-10, 91:2-12, Doc. 77-22.) Trinity provided Pathway with start-up capital to pay expenses as well as management and IT services. (Id. at 106:12-19, 87:9-88:3.) Trinity allowed Pathway to use the Merge LIS Software. (Id.) In June 2016, Pathway began testing patient samples and billing clients using the Merge LIS Software. (Def. Ex. K1, M. Spruill Dep., at 154:23-155:5, 217:11-15, Doc 77-16.)

         However, to prove compliance and become recertified under the CLIA, Performance Labs only performed validation and establishment studies until August 24, 2016, when CMS allowed Performance Labs to begin doing screening tests. (Def. Ex. S, August 24, 2016 Email from CMS to Performance Labs, Doc. 77-28.) During this time, it was under heightened scrutiny from federal and state regulators. (Pl. Ex. 5, C. Howell Dep., at 188:10-189:2, Doc. 95-5.) Performance Labs began with a small panel of tests and had an agreement with Pathway to reference any tests not offered for $85/sample. (Pl. Ex. 12, B. Bourque Dep., at 150:20-21, 203:18-204:11, 406:5-6, Doc. 95-12; Pl. Ex. 2 R. Poe Dep., 125:12-22, 144:2-145:21, Doc. 95-2.) On January 17, 2017, CMS permitted Performance to start conducing confirmatory testing. (Def. Ex. T., October 14, 2016 Email from CMS to Performance Labs, Doc 77-29.) On January 20, 2017, Performance Labs began accepting patient samples from one clinic. (Def. Ex. K1, M. Spruill Dep. at 189:8-19, Doc. 77-16.)

         In February 2017, Performance Labs identified an issue with the tracking of quality control data in the Merge LIS Software and voluntarily ceased patient testing. (Def. Ex. W, March 6, 2017 Correspondence from Performance Labs to CMS, Doc. 77-32.) Performance Labs formulated a “work around” for the issue and indicated to CMS that the issue did not cause Performance Labs or Pathway to submit any incorrect testing results. (Id.) In March 2017, Performance Labs also reported other issues with the Merge LIS Software to CMS. (Def. Ex. X, March 17, 2017 Email from CMS to Performance Labs, Doc. 77-33.) Despite these reported issues with the Merge LIS Software, in August 2017, Performance Labs' suspension was lifted, it was recertified under the CLIA, and could bill Medicare and Medicaid following a successful onsite inspection in June 2017 by state regulators. (Def. Ex. U, January 24, 2017 Email between CMS and Performance Labs, Doc. 77-30; Def. Ex. Y, August 9, 2017 Correspondence from CMS, Doc. 77-34.)

         Plaintiffs allege that the Merge LIS Software contained numerous defects but focus on two alleged defects, the Duplicate Container Defect and the Trojan Horse Defect. The Duplicate Container Defect allegedly resulted in the Merge LIS Software creating duplicate container numbers for patients. Therefore, Plaintiffs maintain that when the Duplicate Container Defect occurred, the software created duplicate records for a single toxicology test, which eventually could result in the software deleting both entries in error. Plaintiffs claim that this compromised laboratory reliability and testing accuracy because it increased the risk that the testing laboratory would fail to perform the requested toxicology test. The Trojan Horse Defect resulted in passwords and other security information being discoverable on Google. As such, Plaintiffs assert that the evidence shows that Plaintiffs were not able to use the Merge LIS Software and be HIPAA compliant. Defendant's expert witness testimony controverts that the alleged defects were present in the Merge LIS Software installed at Performance Labs.

         II. Procedural History

         On August 28, 2017, Defendant removed Plaintiffs' state court action from the Nineteenth Judicial District Court for the Parish of East Baton Rouge, pursuant to the Court's diversity jurisdiction. (Doc. 1.) At the time of removal, Plaintiffs' alleged four causes of action against Defendant: (1) redhibition; (2) rescission of contract for fraud; (3) negligence; and (4) unfair trade practices. (Doc. 1-2.) Defendant filed a Motion to Dismiss, and in a subsequent Ruling and Order, the Court dismissed without prejudice (1) Plaintiffs' fraud claim against Merge and (2) Performance and Prestige's claims against Merge. (Doc. 35.) Plaintiffs filed a Second Amended Complaint. (Doc. 38.) Defendant filed a Motion to Dismiss the Second Amended Complaint. (Doc. 39.) In a Ruling and Order, the Court dismissed with prejudice Performance and Prestige's claims for redhibition and rescission of contract for fraud and claims as third-party beneficiaries. (Doc. 75.) Therefore, remaining at issue in this case are (a) Trinity's claims for (1) redhibition; (2) rescission of contract for fraud; (3) negligence; (4) negligent misrepresentation; and (5) unfair trade practices; and (b) Performance and Prestige's' claims for (1) negligence; (2) negligent misrepresentation; and (3) unfair trade practices. On August 1, 2019, Merge filed its Answer to the Second Amended Complaint. (Doc. 76.)


         “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). If the mover bears his burden of showing that there is no genuine issue of fact, “its opponent must do more than simply show that there is some metaphysical doubt as to the material facts.... [T]he nonmoving party must come forward with ‘specific facts showing that there is a genuine issue for trial.' ” See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348 (1986) (internal citations omitted). The non-mover's burden is not satisfied by “conclusory allegations, by unsubstantiated assertions, or by only a ‘scintilla' of evidence.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (citations and internal quotations omitted). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.' ” Matsushita Elec. Indus. Co., 475 U.S. at 587. Further:

In resolving the motion, the court may not undertake to evaluate the credibility of the witnesses, weigh the evidence, or resolve factual disputes; so long as the evidence in the record is such that a reasonable jury drawing all inferences in favor of the nonmoving party could arrive at a verdict in that party's favor, the court must deny the motion.

International Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1263 (5th Cir. 1991).


         III. Motion to Strike

         a. Parties' arguments

         Defendant argues that Appendix I should be struck from the record because it (1) muddles the summary judgment record with numerous arguments that are not proved by the very evidence cited in support and (2) improperly contains arguments and purported facts that are wholly immaterial to Plaintiffs' claims or to the issues raised in Merge's summary judgment motions, including arguments and allegations that Plaintiffs have stipulated do not form the basis of their claims. (Doc. 112 at 1.)

         Specifically, Defendant contends that Plaintiffs cannot now claim as undisputed facts newly alleged misrepresentations or omissions that were not disclosed during discovery.

         Defendant states:

At a January 17, 2019 hearing on Merge's motion to compel, plaintiffs stipulated before Magistrate Judge Wilder-Doomes that (i) the only alleged misrepresentations at issue were those specifically alleged in the Second Amended Petition (“SAP”), and the only alleged omission at issue related to a purported “duplicate container defect”; and (ii) the only alleged defects at issue were those listed in response to interrogatory 6 (which are the same as those defects listed in paragraphs 76 and 77 of the SAP), as well as an alleged “averaging number” defect. (Ex. A, Tr. of January 17, 2019 Hearing, at 23:9-26:8; Rec. Doc. 38, ¶¶ 76-77.) Judge Wilder-Doomes warned plaintiffs they had a duty to supplement their discovery responses if additional misrepresentations, omissions, or defects became known, but plaintiffs never supplemented their responses before the July 15, 2019 discovery deadline or in the months thereafter. (Ex. A, at 26:1-8.)

(Doc. 112-1 at 2.)[3]

         As to the specific factual allegations that Defendant argues are immaterial or unsubstantiated, Defendant points to the Plaintiff's discussion of: (1) Merge's HIPAA/FDA/HITECH compliance; (2) unalleged defects in the Merge LIS Software; and (3) Merge's decision to exit the market for laboratory software. (Doc. 112-1 at 14-20.)

         In response, Plaintiffs argue that Defendant did not follow the local rules when filing four motions for summary judgment instead of one. (Doc. 115 at 1.) Therefore, Plaintiffs maintain that because Defendant did not submit one motion for summary judgment, they could organize their statements of undisputed facts in an omnibus appendix. (Doc. 115 at 2.) Plaintiffs address Defendant's specific evidentiary objections by claiming that the evidence is admissible, and relevant to proving Plaintiffs' claims. (Id.)

         Plaintiffs claim that Defendant should address its interpretation of the facts in its four summary judgment motions and that there is no reason to grant the Motion to Strike. (Doc. 115 at 4.) Plaintiffs do not address Defendant's argument that the newly alleged misrepresentations, omissions, and defects should be barred due to Plaintiffs' stipulations with Judge Wilder-Doomes.

         In reply, Defendant points out that the local rule Plaintiffs cite was only enacted after Defendant filed its Motion to Strike. (Doc. 118 at 2.) Defendant reasserts that the Motion to Strike did not violate the local rules. (Id. at 3.) Finally, Defendant urges the Court to strike Appendix I. (Id. at 3-5.)

         b. Law governing

         For approximately nine years, recommended federal practices have entailed considering objections to evidence offered in support of or in opposition to motions for summary judgment in conjunction with the actual motion for summary judgment, as opposed to a separate motion to strike, similar to the practice of objecting to evidentiary offerings at trial. See Cutting Underwater Techs. USA, Inc. v. Eni U.S. Operating Co., 671 F.3d 512, 515 (5th Cir. 2012)(“Prior to December 1, 2010, the proper method by which to attack an affidavit was by filing a motion to strike.”); Smith v. Palafox, 728 F.App'x. 270, 275 (5th Cir. 2018)(citing Lee v. Offshore Logistical & Transp., L.L.C., 859 F.3d 353, 355 (5th Cir. 2017)(“[T]he new rule allows a party to object ‘that the material cited to support or dispute a fact cannot be presented in a form that would be admissible as evidence.' ”)). Acting in accord with these recommended practices renders a separate motion to strike moot or unnecessary.

         The 2010 Advisory Committee Notes to Rule 56 of the Federal Rules of Civil Procedure specifically address this issue:

Subdivision (c)(2) provides that a party may object that material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence. The objection functions much as an objection at trial, adjusted for the pretrial setting. The burden is on the proponent to show that the material is admissible as presented or to explain the admissible form that is anticipated. There is no need to make a separate motion to strike. If the case goes to trial, failure to challenge admissibility at the summary-judgment stage does not forfeit the right to challenge admissibility at trial.

         (Emphasis added). See Cutting Underwater Techs. USA, Inc, 671 F.3d at 515 (“Under the now-applicable Rule 56(c)(2) … it is no longer necessary for a party to file [a motion to strike]; instead, the party may simply object to the material.”). Motions to strike should be treated as objections. See National Roofers Union v. Ascension Sheet Metal, LLC, No. 13-597, 2015 WL 4238021, at *1 (M.D. La. June 25, 2015)(citing Cutting Underwater Techs, 671 F.3d at 515).

         c. Analysis

         The Court declines to consider the merits of the Motion to Strike because doing so is not necessary under the Federal Rules of Civil Procedure. Defendant's objections to Plaintiffs' proffered evidence will be considered in conjunction with the Court's ruling upon Defendant's motions for summary judgment. The newly enacted Local Rule 56(e) for the Middle District of Louisiana states that motions to strike are not allowed. However, this newly enacted rule does affect the Court's consideration of the Motion to Strike, because that motion was filed before the new rule became effective. Therefore, at the time the Motion to Strike was filed, the rule allowed parties to file a separate motion to strike.

         As explained below, summary judgment for the Defendant is not appropriate, notwithstanding its objections to evidence in Plaintiffs' Appendix I regarding the misrepresentations, omissions, and defects that were not alleged in the Second Amended Petition. Defendants correctly note that Judge Wilder-Doomes specifically stated Plaintiffs had a duty to supplement their interrogatory responses with any additional misrepresentations, omissions or defects that they discovered and intended to use as a basis for their claims. Defendants are also correct that the admissibility of the statements underlying Plaintiffs' new claims is questionable and that the Court should ignore, at summary judgment, the phrasing of Plaintiffs' “undisputed facts” which are argumentative and not clearly supported by the evidence. These points do not, however, change whether genuine disputes of material fact exist; the deposition testimony from Blake Bourque and his former staff members, attached to Appendix I, provide enough evidence to establish triable issues of fact.

         As to whether evidence of Merge's decision to exit the laboratory software market is relevant, the Court will defer its decision until trial. Plaintiffs' trial evidence may show that the alleged software defects were more widespread than Defendant asserts. If a reasonable factfinder could conclude that software defects caused Merge's decision to exit the market, the evidence regarding those defects would be relevant because it would make it more likely that Defendant acted with fraudulent intent.

         Based on the foregoing, the Motion to Strike is denied without prejudice. In ruling on the motions for summary judgment, the Court will consider the evidence proffered in Appendix I but not Plaintiffs' characterization of it. To the extent that Plaintiffs did not provide fair notice of the misrepresentations, omissions, and defects that form the basis of their claims, the Court will defer ruling on whether to exclude the testimony at trial under Rule 403 of the Federal Rules of Evidence. Defendant is urged to reassert the objections, if necessary, outside of the presence of the jury.

         IV. Lost Profits Motion

         a. Parties& ...

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